Crane NXT(US:CXT)2024-05-11 16:13Financial Data and Key Metrics Changes - The first quarter performance was in line with expectations, with core sales declining approximately 4% year-over-year, reflecting lower sales at CPI and a challenging comparison to Q1 2023 [14][7] - Adjusted segment operating margin was flat year-over-year at 27%, driven by strong productivity across both segments despite lower volumes [14] - The net leverage ratio was approximately 1.2 times at the end of Q1, increasing to approximately 1.8 times post-acquisition of OpSec, providing ample capacity for further M&A [16][10] Business Line Data and Key Metrics Changes - Crane Currency reported a slight decline in core sales due to lower U.S. volumes, with an improved adjusted segment operating margin of 270 basis points year-over-year, reflecting favorable mix and increased productivity [15] - CPI reported a decline in core sales of 7% in Q1, with an adjusted segment operating margin decreasing 110 basis points to 29% year-over-year, impacted by lower sales in the gaming end market [139] Market Data and Key Metrics Changes - The backlog for the CPI segment was drawn down as expected, with a return to more normal levels anticipated by the end of Q2 [139] - International sales continued to be strong, with a backlog up 13% year-over-year, indicating confidence in full-year projections [60] Company Strategy and Development Direction - The acquisition of OpSec Security is a major milestone, aligning with the strategy to expand leadership in the authentication market, with expectations of contributing approximately $80 million to $90 million in revenues in 2024 [10][25] - The company is focused on integrating OpSec and leveraging its technology to enhance customer offerings, with a new segment structure to better align with growth strategies [23][127] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying gaming market and expected mid-single-digit growth in non-gaming verticals, with a strong share position maintained [31][51] - The company anticipates that the investments in the U.S. banknote redesign program will provide a multiyear growth opportunity, despite temporary impacts on revenue due to equipment upgrades [61][32] Other Important Information - Adjusted EPS for Q1 was $0.85, on track with full-year guidance of $4.10 to $4.35, despite higher non-operating expenses due to the OpSec acquisition [128][59] - The company expects adjusted segment operating margins to be in the range of 26% to 28%, reflecting dilution related to OpSec [128] Q&A Session Summary Question: Impact of ongoing gaming inventory drawdown on business - Management indicated that CPI is expected to resume orders in Q3, with a strong performance anticipated in the second half of the year [36][66] Question: Trends in international business and denominational wins - Management confirmed a strong start with five new micro-optics denominations won in Q1, maintaining a trajectory of 10 to 15 new denominations annually [39][41] Question: Acquisition strategy post-OpSec - Management emphasized a focus on growing existing businesses and leveraging OpSec's capabilities, with a disciplined M&A process to continue [72][74] Question: Free cash flow and working capital management - Management noted that Q1 free cash flow was impacted by timing of working capital, with expectations of approximately 100% conversion for the full year [81][87] Question: Investment in OpSec for growth opportunities - Management sees both cost synergies and growth opportunities in OpSec, with a focus on expanding technology offerings and customer base [83][84]